Question about interest on savings

dave0000

if you get paid monthy interest would you earn more than if you got paid yearly. is this right if i had 1000 and was geting paid 3.6% yearly at the end of the year i would have 1036 if i got paid the same 3.6% paid monthly each month i would earn 3.00 so say month 10 i would be geting 3.6% on 1030 instead of 1000 and be geting interest for the extra i got paid the other months is this right

posted_2

No, if the aer is the same, that's what you'll get at the end of the year, whether you choose monthly or annual interest.

dave0000

posted wrote: »

No, if the aer is the same, that's what you'll get at the end of the year, whether you choose monthly or annual interest.

ok thanks are you 100% sure

malik999

dave0000 wrote: »

ok thanks are you 100% sure

yes he is correct. hth

Money_Grabber13579

That is absolutely right because you'll find that monthly gross rates are lowered to compensate for monthly interest.

Baldur

dave0000 wrote: »

ok thanks are you 100% sure

See http://www.moneysavingexpert.com/banking/interest-rates#AER

sloughflint

dave0000 wrote: »

if you get paid monthy interest would you earn more than if you got paid yearly. is this right if i had 1000 and was geting paid 3.6% yearly at the end of the year i would have 1036 if i got paid the same 3.6% paid monthly each month i would earn 3.00 so say month 10 i would be geting 3.6% on 1030 instead of 1000 and be geting interest for the extra i got paid the other months is this right

The figure to look at is the AER. Whether interest is paid annually or less, this figure will indicate what interest you would have earned after a year.It includes compounding if interest frequency is more than one per year.

Milarky

But even if the AER is identical on monthly and annual paying accounts, tax may be taken from the monthly payments as most savers are also taxpayers. This has a second order effect your return and the general advice is that 'annual is better than monthly'.

Example

3.6% gross/AER (monthly AND annual)

Annual
For 20% taxpayer the return on £1000 is therefore £28.80 (i.e.£36 x 80%)
Higher rate taxpayer gets the £28.80 but has to pay a further £7.20 later - so their return is £21.60

Monthly
First we need to work out the monthly equivalent of '3.60 AER' which is 0.2952% per month With compounding however '3.54 monthly' IS '3.60 AER'

But the taxpayer doesn't receive 0.2952% each month added to their account - they only get 80% of this - which is 0.2361% (net). So compound this amount rather than the gross monthly amount is what leads to a (small) difference:

Instead of ending at '£1028.80' the account would end up with a balance of '£1028.71' - a mere 9p less. However 9p is 9p!!

dave0000

so yearly is a bit better on taxed accounts but not much,unless you had 100,000+ its not worth changeing from monthly to yearly interest and on 3.6% you would only be about £9.00 better off when taxed is this right

Nala

I was 99.9% sure that you'd earn the same amount of interest regardless of it being paid monthly or yearly.

Then I read this in the SundayTimes

SAVINGS
You can still get 2.75% on instant-access savings, while the top cash Isa pays 3.61% and, for regular savings, you can achieve 5.84%, but this is limited to deposits of £250 a month. Opting for monthly interest will mean you earn more, as the interest itself then earns interest. If you have a sizeable amount, look for tiered accounts.

They ARE wrong aren't they?

dave0000

hmm so the sunday times agrees with what i said fist that with monthly you earn more is this right or wrong this is confuseing